Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79183
Authors: 
Sbordone, Argia M.
Year of Publication: 
2001
Series/Report no.: 
Working Papers, Department of Economics, Rutgers, The State University of New Jersey 2001,12
Abstract: 
This paper investigates the predictions of a simple optimizing model of nominal price rigidity for the dynamics of inflation. Taking as given the paths of nominal labor compensation and labor productivity to approximate the evolution of marginal costs, I determine the path of prices predicted by the solution of the firms' optimal pricing problem. Model parameters are chosen to maximize the fit with the data. I find evidence of a significant degree of price stickiness and substantial support for the forward-looking model of price setting. The results are robust to the use of alternative forecasting models for the path of unit labor costs, alternative measures of marginal costs, and alternative specifications of the model of price staggering.
Subjects: 
Inflation
Phillips Curve
Unit Labor Cost
JEL: 
E31
E32
Document Type: 
Working Paper

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